IS THERE AN ECONOMIC BENEFIT TO CHARGING LOCAL SALES TAXES ON ALL INTERNET TRANSACTIONS?

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NO: Most proposals to raise or enforce the collection of taxes typically inform the taxpayer of the purpose or benefit that the tax revenue will provide. Not much discussion about how out-of-state taxpayers benefit from forcing online merchants to collect sales taxes for America’s estimated 9,600 state and local taxing authorities. The Internet is a new technology that has exponentially increased the level of retail competition, forcing a new wave of “creative destruction” based on individual consumer awareness of prices. In this global economy, local governments may initially be successful, only to lose sales to foreign merchants in the end.

YES: On two levels: It means more taxes are being collected, thus raising revenues that are currently escaping the state treasuries; but it also puts the bricks and mortars on a more even competitive playing field, at least for now. The problem is that this will probably backfire on the bricks and mortars. At the moment the major competitive advantage for (them) is over-the-counter purchases so consumers do not have to wait. But with the requirement that Internet-based retailers collect the sales tax, the major incentive for them not to own property in California goes away, so Internet retailers might as well locate their storage facilities here, thus nullifying that competitive advantage.

Last week: Does it matter that GDP is being recalculated to take into account the value of the ‘knowledge-based’ economy?

NO: Compelling businesses to collect sales taxes for states where they do not have a physical presence would abolish the bedrock American principle of “no taxation without representation.” Particularly detrimental to smaller businesses, it would institutionalize competitive advantages for larger businesses having more resources to navigate the myriad sales taxes among all 50 states and nearly 10,000 local jurisdictions. The result will be ever-higher sales taxes being implemented without accountability, representation or benefit to the seller. Businesses should only collect sales taxes on behalf of state and municipalities where they are located.

YES: For the sake of equity, in the face of ever-increasing online sales, there is no choice but to impose sales taxes on vendors. Imposing this burden will trigger a wave of third-party vendors who will track all the various sales tax districts and automatically calculate, collect and assist in payments to local governments, which will allow small to mid-size vendors to comply. Until these third-party vendors fully emerge, the burden on small vendors will be disproportionate, so it would be wise to provide a fairly slow phase-in period with some more generous exemptions for the very smallest vendors.

YES: It would level the playing field between the traditional brick-and-mortar retailers and the online ones. That would help in terms of employment for traditional retailers and also in terms of commercial real estate involving retailing. The other area where it would help would be in the fiscal difficulties being faced by state and local governments. Sales tax revenue goes to state and local governments as opposed to the federal government, and the rise of online retailing has negatively impacted the fiscal condition of those governments. Any negative impact on consumers will likely impact those at the higher end of the income distribution.